Future cities in a warming world

More than half the global population are already urban, and the UN and other organisations expect this share to rise in future. However, some researchers argue that the future of cities is far from assured. Cities are not only responsible for 70% or more of the world's CO₂ emissions, but because of their dense concentration of physical assets and populations, are also more vulnerable than other areas to climate change. This paper attempts to resolve this controversy by first looking at how cities would fare in a world with average global surface temperatures 4 °C above pre-industrial levels. It then looks at possible responses, either by mitigation or adaptation, to the threat such increases would entail. Regardless of the mix of adaptation and mitigation cities adopt in response to climate change, the paper argues that peak urbanism will occur over the next few decades. This fall in the urban share of global population will be driven by the rise in biophysical hazards in cities if the response is mainly adaptation, and by the declining attraction of cities (and possibly the rising attraction of rural areas) if serious mitigation is implemented.     

Utopian and dystopian thought in climate change science and policy

Climate change policies are increasingly seen as integral to sustainable development policies. This article examines how visions of future society have been employed in climate science and multilateral negotiations. Using elements of utopian and dystopian thought, we have categorized UNFCCC documents, IPCC assessments, and special reports and peer-reviewed climate policy articles. Our results indicate that utopian thinking surfaces with reference to sustainable development and emissions scenarios. Such visions of future society fall into three categories: projections, dystopian thought, and utopian thought. Dystopian thought is mainly evident in the rhetoric of various actors, and is used to spur action or inaction, to avoid either economic catastrophe by acting too fast or ecological catastrophe by not acting fast enough. Utopian elements in climate change science and policy refer to decoupling greenhouse gases and economic growth, evenly distributing the benefits of economic globalization, and smoothing technological development. The present piecemeal invocation of sustainable development concepts in climate science and policy emphasizes the difficulties of integrating environmental, social, and economic concerns. The article concludes that utopian thinking regarding sustainable development could result in more integrated and holistic visions of future society in climate science and policy.     

Predictive regression with order-p autoregressive predictors

Studies of predictive regressions analyze the case where y_t is predicted by x_t ? 1 with x_t being first-order autoregressive, AR(1). Under some conditions, the OLS-estimated predictive coefficient is known to be biased. We analyze a predictive model where y_t is predicted by x_t ? 1, x_t ? 2,… x_t ? p with x_t being autoregressive of order p, AR(p) with p > 1. We develop a generalized augmented regression method that produces a reduced-bias point estimate of the predictive coefficients and derive an appropriate hypothesis testing procedure. We apply our method to the prediction of quarterly stock returns by dividend yield, which is apparently AR(2). Using our method results in the AR(2) predictor series having insignificant effect, although under OLS, or the commonly assumed AR(1) structure, the predictive model is significant. We also generalize our method to the case of multiple AR(p) predictors.     

Carbon Price in China: A CO2 Abatement Cost of Wind Power Perspective

As a result of rapid development of industrialization and urbanization, energy (especially fossil fuels) demand growth is increasing. Hence, China is facing the huge pressure of environmental protection and CO₂ emission reduction. The feed-in tariff (FIT) policy that promotes more wind power to substitute for thermal power and a well-functioning carbon price mechanism can significantly affect CO₂ abatement, and both can work in coordination to achieve emission reduction. Using panel model, we prove that FIT policy is more effective than other policies in promoting more wind power. Also the slowdown of economic growth, energy substitution, technological progress, and CO₂ mitigation requirement can stimulate the expansion of wind power. Additionally, based on the calculation of real abatement cost of wind power, we obtain the provincial and national average of carbon prices (239 CNY/ton and 242 CNY/ton). Specifically, 233-251 CNY/ton will be the range for reasonable carbon price in the future. We find that the carbon prices in this article are higher than those of the emissions trading scheme pilots in 2014 and 2015, due to the relatively high proportion of free allowance. Based on the above conclusions, we proposed some policy suggestions.     

Climate change impacts and its implications on future water resource management in the Meghna Basin

Copious precipitation in the Meghna Basin has remarkable consequences for floods in the north-eastern region of Bangladesh. In addition, due to climate change more frequent extreme precipitation may also increase the frequency and intensity of flash floods. In this study, a hydrologic model H08 has been applied over the basin at a relatively fine grid resolution (10 km). The impacts of climate change are assessed by using the super-high-resolution MRI-AGCM3.2S with A1B scenario through three time-slice experiments; the base-period (1979–2003), the near-future (2015–2039), and the far-future (2075–2099) periods. This study investigates the spatio-temporal changes and the changes in the frequency of precipitation and runoff with different magnitude ranges and finds the implications for water resources management under climate change. Results show that, (a) the projected maximum increment of mean annual precipitation (runoff) is +23% (+34%) and +31% (+39%) during the near-future and the far-future, respectively, (b) the projected increment of median value of monthly discharges at basin outlet is significantly high in wet period (May-July), ranging from 38 to 44% and 25–104% in the near-future and the far-future, respectively. Moreover, the monsoonal peaks are expected to come about 1 ∼ 1.5 month earlier, which ultimately lead to higher possibility of earlier flash flood in the future. This anticipated higher increment in peak discharge as well as future shifting of seasonal cycle of river discharge will have significant implications for agriculture and flood disaster management. Findings will also contribute to enhance water resource management in the basin and improve the design of adaptive measures.     

Climate transition risk in U.S. loan portfolios: Are all banks the same?

We examine banks' exposure to climate transition risk using a bottom-up, loan-level methodology incorporating climate stress test based on the Merton probability of default model and transition pathways from the Intergovernmental Panel on Climate Change (IPCC). Specifically, we match machine learning predictions of corporate carbon footprints to syndicated loans initiated in 2010–2018 and aggregate these to loan portfolios of the twenty largest banks in the United States. Banks vary in their climate transition risk not only due to their exposure to the energy sectors but also due to borrowers' carbon emission profiles from other sectors. Banks generally lend a minimal amount to coal (0.4%) but hold a considerable exposure in oil and gas (8.6%) and electricity firms (4.6%) and thus have a large exposure to the energy sectors (13.5%). We observe that climate transition risk profile was stable over time, save for a temporary (in some cases) and permanent (in others), reduction in their fossil-fuel exposure after the Paris Agreement. From the stress testing, the median loss is 0.5% of US syndicated loans, representing a decrease in CET1 capital of 4.1% when extrapolated to the whole balance sheet. The loss is twice as large in the 1.5°C scenarios (1.4%–2.1% of loan value, 12%–16% of CET1 capital) compared to the 2°C target (0.6%–1.1% of loan value, 5%–9% of CET1 capital) with significant tail-end risk (7.7% of loan value, 62% of CET1 capital). Banks' vulnerabilities are also driven by the ex-ante financial risk of their borrowers more generally, highlighting that climate risk is not independent from conventional risks.     

Non-government organisations and the dialectics of state and civil society

This paper is concerned with envisioning the development of non-government organisations (NGOs) in Australia over the next 200 years. It begins with a discussion of a hypothetical NGO, providing vignettes of its activities in 2104 and 2204, and sketching out contextual factors that might influence NGO development. This discussion is followed by an outline of the methodology upon which the projections indicated in the hypothetical case-study are based. Three methodological approaches are used. The first approach begins from an analysis of current contextual trajectories, and projects the role of NGOs within these trajectories. The second approach postulates that the changes that will occur will be affected by the reflexive nature of social change, involving continual reflection and action. The third methodological approach draws on this notion of reflexivity, but emphasises that social change is not only a reflexive process, it is also a dialectical one. The dialectical approach rests on the premise that change occurs through a process of the accumulation of contradictions, challenge and resolution. Using these methodological approaches the paper proceeds to identify three factors which will influence the Australian NGO sector in the next 200 years. These factors are the shifting relations between the state and civil society, including the rise of the neo-authoritarian state in the 21st century; the ways in which least advantaged people are dealt with and, finally, the idea of risk society. While it is more difficult to identify the contextual and NGO trajectories into the 22nd and 23rd centuries, the paper postulates a more utopian vision for NGOs in Australia in 200 years time, where the category of people who had been previously marginalised disappears, and the major roles of NGOs are to ensure cultural diversity and develop civil labour.     

Construcción de un instrumento para medir el clima organizacional en función del modelo de los valores en competencia

The purpose of this study was to explore a model in the Mexican labor field that contextualizes organizational climate and links it with organizational culture. The Competing Values Framework (CVF), by K. S. Cameron & R. E. Quinn, was chosen due to its importance as the framework with more empirical evidence regarding corporate culture. The CVF proposes a four-quadrant structure for organizations: 1) internal focus, flexibility (clan), 2) internal focus, stability and control (hierarchy), 3) external focus, flexibility (adhocracy), and 4) external focus, stability and control (market). Likewise, it states that organizations present a mix of values from all quadrants. Overall, the findings of the study founded the model on a heterogeneous sample of 12 organizations (n = 1424) in the central region of Mexico. In addition to the model, a primer version of an instrument was designed with the intention to measure organizational climate according to the CVF. The instrument proved its capability to discriminate amongst organizations and, in general, its reliability and validity.     

Command-and-control: Alternative futures of geoengineering in an age of global weirding

In July 2012, Russ George, the founder of Planktos Inc., organized efforts to dump 100 tons of iron sulfate off the coast of Canada to engineer a plankton bloom that would, ostensibly, absorb carbon dioxide and store it in the depths of the Pacific Ocean. As George's geoengineering experiment is one of the largest and first of its kind, many were quick to denounce his rogue action while others were delighted to see that he succeeded as a large algae bloom was reported to have emerged. Using the George event as a point of entry for exploring alternative futures of geoengineering in an age of global weirding, this project fuses the 2 × 2 scenario modeling technique with the “Mānoa School” four-futures method by situating command and control, along X (control) and Y (command) axes as two critical uncertainties and key drivers of change that will impact the design, development, and diffusion of climate mitigation engineering initiatives, which some see as holding the only solution to avert global catastrophe and others condemn as a postnormal remedy.     

Risk management implications of time-inconsistency: Model updating and recalibration of no-arbitrage models

A widespread approach in the implementation of asset pricing models is based on the periodic recalibration of its parameters and initial conditions to eliminate any conflict between model-implied and market prices. Modern no-arbitrage market models facilitate this procedure since their solution can usually be written in terms of the entire initial yield curve. As a result, the model fits (by construction) the interest rate term structure. This procedure is, however, generally time inconsistent since the model at time t = 0 completely specifies the set of possible term structures for any t > 0. In this paper, we analyze the pros and cons of this widespread approach in pricing and hedging, both theoretically and empirically. The theoretical section of the paper shows (a) under which conditions recalibration improves the hedging errors by limiting the propagation of an initial error, (b) that recalibration introduces time-inconsistent errors that violate the self-financing argument of the standard replication strategy. The empirical section of the paper quantifies the trade-off between (a) and (b) under several scenarios. First, we compare this trade-off for two economies with and without model specification error. Then, we discuss the trade-off when the underlying economy is not Markovian.     

The question mark over coal: Pollution,politics, and CO2

There is a growing concern about the effect of fossil-fuel burning, and the consequent increase in carbon dioxide (CO₂) concentration in the atmosphere. This increasing concentration is now well-documented, and although the evidence of actual or potential climate changes is not conclusive, the growth in energy consumption magnifies the importance of the possible dangers. This article highlights two aspects of the issue. The CO₂ increase will be mainly produced by coal. And whereas the increase in atmospheric CO₂ is now being imposed upon the world principally by the USA, the USSR, and Western Europe, the developing countries will probably be important contributors by early in the next century. Using world energy resource estimates and projections of the global production of CO₂ from fossil-fuel burning in the year 2025, the authors argue that it will be difficult to achieve an international consensus and commitment to deal with the issue. This is because of the relationship between economic growth, industrialisation, and the production of CO₂, and because of the distribution of the beneficial and harmful effects of any climatic change.     

Under-or-overreaction: Market responses to announcements of earnings surprises

We test whether the well-documented market reaction to the announcements of earnings surprises is a manifestation of an investor underreaction or overreaction to extremely good or bad earnings news. Using the market reaction in the three-day period surrounding the announcements of extreme earnings surprises (i.e., SUE) in quarter Q_t as a reference point, we show that firms reporting a high (low) SUE in subsequent quarter Q_t + 1 that confirms their initial quarter Q_t SUE ranking in the same highest or lowest SUE quintiles generate an incremental price run that moves in the same direction as that of the initial SUE. However, the price impact of the confirming SUE signal is weaker than that of its initial SUE. Our findings are robust to the Fama-French three-factor daily regression extended by the momentum factor and a number of other robustness tests. Our result is not consistent with the prevalent view that investors underreact to earnings news. To the contrary, the evidence suggests an initial investor overreaction to extreme SUE signals.     

The nexus between financial integration and real economy: Solow-growth model concept

This paper aims to investigate the nexus between financial integration and the real economy in ASEAN + 3 economies based on the concept of Solow-Growth Model. The equity indices as a proxy for financial markets are collected from each ASEAN + 3 members and are segmented between two periods; before and after the financial cooperation agreement period. The finding presents several outcomes; 1) no cointegration nexus is found in the system during the pre-agreement periods; 2) the markets are found cointegrated during the post-agreement period, 3) financial integration is found to influence the real sectors of ASEAN + 3 economies. Finally, this study offers policy implications to improve financial integration for stabilizing the real economy.     

The importance of size in private equity: Evidence from a survey of limited partners

Using a comprehensive survey, we show that investors with a larger capital allocation to private equity are more specialized − measured by the degree to which the investor focuses on private equity rather than other classes of investments − and have a wider scope of due diligence and investment activities. Other investor characteristics (experience, type, location, compensation structure, number of funds under management) play no role. In particular, endowments are not special according to the survey measures. These results are consistent with the changing LP–GP relationship in private equity as capital is increasingly concentrated in the hands of large investors.     

Frequency of observation and the estimation of integrated volatility in deep and liquid financial markets

Using two newly available ultrahigh-frequency datasets, we investigate empirically how frequently one can sample certain foreign exchange and U.S. Treasury security returns without contaminating estimates of their integrated volatility with market microstructure noise. Using the standard realized volatility estimator, we find that one can sample dollar/euro returns as frequently as once every 15 to 20 s without contaminating estimates of integrated volatility; 10-year Treasury note returns may be sampled as frequently as once every 2 to 3 min on days without U.S. macroeconomic announcements, and as frequently as once every 40 s on announcement days. Using a simple realized kernel estimator, this sampling frequency can be increased to once every 2 to 5 s for dollar/euro returns and to about once every 30 to 40 s for T-note returns. These sampling frequencies, especially in the case of dollar/euro returns, are much higher than those that are generally recommended in the empirical literature on realized volatility in equity markets. The higher sampling frequencies for dollar/euro and T-note returns likely reflect the superior depth and liquidity of these markets.     

Design and evaluation of an advanced continuous data level auditing system: A three-layer structure

Audit efficiency and effectiveness can be significantly affected by data aggregation during audit procedures. Previous studies highlight that an appropriate level of data aggregation is needed because a continuous auditing (CA) system often generates numerous alarms. To respond to this issue, this study proposes a CA system with a three-layer structure. In the first layer of the proposed system, all journal entry level transactions are classified and aggregated using defined rules; any transactions that deviate from these rules are identified as unusual transactions. The second layer detects the observations that violate controls. Analytical monitoring models are developed in the final layer to identify observations that statistically deviate from an organization’s typical business behaviors. To examine whether the proposed three-layer CA system enhances the effectiveness of a CA system in identifying financial irregularities, this study empirically tests the proposed models using real-world journal entry data from a construction company. The results indicate that the proposed framework enhances audit effectiveness and efficiency.     

Gaining a competitive edge through acquisitions: Evidence from the telecommunications industry

I study the announcement effects of all acquisitions in the recent telecom wave on both the acquirers and their industry competitors. I find evidence of negative rival returns (? 0.55%, t-stat = 2.47) by focusing on non-horizontal acquisitions where rivals are less susceptible to experience positive returns due to increased market power or expectation that some will become future targets themselves. I find that this effect is worse for closer rivals defined as having similar size and being in the same primary service area as the acquirer. Competitor returns are positively correlated with those of the acquirers suggesting that the negative impact experienced by competitors is driven by acquisitions in which the acquirer itself is earning negative abnormal returns. Results are broadly consistent with the Competitive Advantage Hypothesis that posits acquisitions are a means of corporate restructuring in a changing environment, awarding the acquirer a competitive edge and thereby making these acquisitions costly for their non-merging competitors.     

The home bias is here to stay

Over the last 15 years, dramatically decreasing foreign investment costs have not reduced the home bias. We show that the home bias induced by a given cost is proportional to the factor ρ/(1 − ρ), where ρ is the average correlation between markets. This factor is very sensitive to the correlation, especially when the correlation is high. Empirically, correlations have been steadily increasing from 0.4 in the 90’s to about 0.9 today. Thus, the decreasing extra costs are increasingly magnified, explaining the persistence of the home bias, and predicting its continuation.     

Dividend privileges and the value of voting rights: Evidence from Italy

The present paper proposes a new measure of the voting right, the Relative Vote Segment, which incorporates dividend privileges into the inferior class of shares. We test and compare it against the standard Relative Price Difference and the Nenova (2003) measure using 1998–2008 data from Italy, a country where dividend privileges are relevant. Results show that when dividend privileges are considered, the average voting right equals + 35.63%, while its estimated value corresponds to a significantly lower + 20.35% and + 1.29% with the Relative Price Difference and the Nenova (2003) measure, respectively. Negative values of voting rights drop significantly with our methodology. Results become even more clear-cut when we clean the sample of possible measurement errors. As far as the determinants of the voting premium are concerned, the choice of the measure does not appear to have a significant impact, as long as the dividend differences are controlled for.